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CAPITOL
Spitzer’s budget office warns of lower revenues
BY MICHAEL GORMLEY The Associated Press

   Believe it or not, you should care about whether a Wall Street trader gets a big bonus in December.
   In good years, a Wall Street trader or investment banker can pocket well over $100,000 in a year-end bonus. The bonuses, based on financial performance, can add up to more than $20 billion industrywide and that can result in hundreds of millions of dollars in state tax and fee revenue.
   But this year’s forecast is getting gloomier.
   “I think, unfortunately, it does appear to be getting worse and I don’t believe we have hit bottom,” said Paul Francis, budget director for Gov. Eliot Spitzer.
   Francis will detail that view Tuesday in the Spitzer administration’s report for the middle of the 2007-08 fiscal year. Francis had previously projected a $3.6 billion budget gap for the 2008-09 budget due April 1. He would not say last week how big the revised budget could be.
   “It is going to reflect lower revenues and a significant factor in that will be an estimate of lower revenue from Wall Street,” Francis, the former CFO of Priceline.com, said Friday.
   State Comptroller Thomas Di-Napoli, in a routine cash report, underscored the concern.
   “Revenue performance has been steady, but we’re seeing some cautionary signs that could indicate tougher times lie ahead for the state,” DiNapoli said Friday. One of the possible early warning signs: Business tax revenues for the fi rst half of the fiscal year were $93 million below forecast levels.
   The current state budget totals about $80 billion in state operating funds alone, or about $120 billion when all funds including federal money and capital borrowing are included.
   Francis had said in September he wants to keep state spending growth to about 5.3 percent, which his Division of Budget sees as the rate of personal income growth in New York. Inflation is about 3 percent.
   About 20 percent of the state’s total revenues come from the myriad taxes and fees generated by Wall Street. And the national subprime lending crisis is forcing huge tax write-offs from losses by Citibank, Merrill Lynch and other major lenders and firms, he said. Some marquee firms are talking about thousands of layoffs.
   The housing slowdown in New York is also slowing down the statewide economy and cutting into tax revenues. Further, consumer confidence will likely be hurt as New Yorkers see more of their neighbors lose their homes to foreclosure. Thousands statewide can no longer afford their subprime, adjustable rate mortgage payment as interest rates rise.
   For New Yorkers, the bad news still won’t likely mean a state tax increase, which Spitzer and the Republican-led Senate already promised to avoid. That’s partly because the concern is over reduced growth in revenues, not a reduction of revenues.
   But it could mean reduced state funding in areas that can quickly mean higher local taxes. It can also mean reduced services that are dependent on state aid, including health care facilities.
   Gloom has long been a tool for chief executives in crafting their budget proposal to the Legislature. That’s an early bargaining chip for governors in Albany’s annual poker game with legislative leaders. The result of the contentious bargaining is usually about $1 billion added to the governor’s budget by the Legislature.
   During the Pataki administration, the Republican governor would project the lowest level of revenues, the Democrat-led Assembly the highest, and the Republican-controlled Senate was usually closest to the fi nal figure.
   Francis maintains this isn’t posturing. He said revenues have exceeded projections every year over the last 12 years, except for the two fiscal years following the 2001 terrorist attacks.
   “I think that has led to a kind of complacency that revenue will always be higher than the budget division’s projections,” Francis said. “Unfortunately, this isn’t one of those years.”  

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“Revenue performance has been steady, but we’re seeing some cautionary signs that could indicate tougher times lie ahead for the state,” DiNapoli said Friday. One of the possible early warning signs: Business tax revenues for the fi rst half of the fiscal year were $93 million below forecast levels.